An Analysis on the Short-Term Sectoral Competitiveness Impact of Carbon Tax in China

Abstract

Market-based instruments, together with command-and-control policies, could make a cost-effective contribution to the achievement of China’s climate targets. Much of the recent debate on the subject has focused on a long-term impact analysis approach and the implementation of a carbon tax. However, one of the important issues concerning such a carbon tax in China, particularly for policy makers, is the short-term impacts. Since carbon intensity and economic competition levels differ widely among sectors, we divided China’s economy into 36 sectors, based on its 2007 input-output table, in order to examine the ratio of carbon tax added costs to sector GDP. We were thus able to determine the impact level of a carbon tax on each sector. We then divided the sectoral trade impact into domestic competitiveness with regards to foreign imported products and international competitiveness external to the Chinese domestic market. We found that a high tax level (100 yuan/t CO2) may necessitate compensatory measures to certain highly affected industries, and that a low tax rate (10 yuan/t CO2) would generate few competitiveness problems for all industries and may therefore be considered as an appropriate starting point.